Just 50pc of dairy farmers intend to expand milk production between 2015 and 2020, as fears around the weather, higher input costs and price volatility hit farmer confidence.

These were the key findings from an in-depth study of farmer intentions that was commissioned by AIB and the IFA and carried out by Amárach Research and Broadmore Research.

The survey found that farmers were relatively optimistic about the future of the sector, with 25pc identifying the abolition of the quota system as the greatest opportunity for growth in the dairy sector.

However, this optimism was tempered by fears that increased volatility in prices and spiralling input costs would undermine margins.

Sixty per cent of the 200 farmers surveyed said they had increased milk output over the past three years, while 38pc had made no change.

The larger milk quota holders were the most likely to expand and they were also best placed to deal with price volatility.

Up to 88pc said that price volatility would be a feature of the dairy scene between 2015 and 2020, while 66pc said it would be a serious challenge up to 2015.

In the case of milk prices falling sharply, 43pc of farmers said they would seek to reduce overheads and costs.

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Worryingly, however, 10pc said they would reduce herd size, while 12pc said they would get out of milk production.

Younger and larger farmers, as well as those who intended to over-supply their milk quota, were the most likely to reduce costs if milk prices decreased.

In contrast, smaller farmers and those in Connacht/Ulster, were most likely to consider getting out of milk.

Weather and higher input costs were also cited as serious challenges to growth in the dairy sector.

The weather was identified as the primary concern for farmers in Connacht/Ulster, with 55pc stating it was their greatest worry. However, it was far less of a concern for farmers on the drier ground in the east and south. These farmers identified higher input costs as their primary concern.

The poor weather last year hit dairy farmers' margins, with 60pc suffering a fall in incomes. For 26pc of those surveyed, incomes fell by 20pc or more, while in 34pc of cases the reduction ranged from 10pc to 20pc. The study found that the reduced income had imposed a significant burden on farms and dented the confidence and the ability to invest for future growth.

In contrast, close to a quarter of the 200 farmers had increased farm output and farm income through 2012, while the income of 17pc of the respondents was unchanged.

Responding to the findings of the survey, Ken Burke of AIB said the fact that 50pc of the farmers surveyed planned to expand output showed that confidence in the sector remained high.

IFA president John Bryan said dairy farmers had not lost sight of the real opportunities presented by growing global demand despite the difficulties of the past 12 months.